September is the worst month for stocks

                                          Credit to Cyanide and Happiness    

     Historically, September is the worst month for stocks with prices dropping an average of 1.4% on the S&P 500.  The reasons for this vary.   Sam Stovall of S&P speculates that people spend more time looking at their investments after a summer of "focusing more on their tans than their portfolios."

     "Psychologically, when the leaves turn in the fall, vacations end and the days are getting shorter, there is this kind of negative vibe out there that tends to accentuate any negative events," said Dan Seiver, a finance professor at San Diego State University.

     Also, many mutual funds fiscal year ends in September and mutual fund managers tend to sell their losers for tax purposes during this time period. 

     Whatever the reasons for this sorrowful September phenomenon, it is worth noting as we go into the beginning of the month with many worries in the markets.  Odds are this will be another woeful September so plan accordingly.

ECONOMIC DATA
      Initial jobless claims came in a little worse than expected at 409,000 but still dropped 12,000 from last week.  Economists were expecting 407,000.  Initial jobless claims measures new people who have filed for unemployment in the last week.  Continuing claims for unemployment dropped to 3,735,000.

     Worker productivity dropped .7% in the last quarter in a sign that existing employees maybe getting overworked with no new hiring going on.  On the plus side, unit labor costs rose 3.3% which means employees are getting paid more.

    Manufacturing also grew for the 25th straight month an Institutue for Supply Management survey said.  The metric came in at 50.6 which was better than economists had forecast.  Any number over 50 indicates expansion.  Economist had expected a number below 50 due to the turmoil in the financial markets in August.  Stocks rose sharply after this data was released going from 40 points down on the DOW to 80 points up.

STOCKS 
     Stocks I am watching today include NLY.  NLY has dropped 3.5% on heavy volume in early trading on word that the SEC is taking comments on possibly changing some rules regarding MREITs that would threaten their business model.

     "Through an advance notice of proposed rulemaking, the SEC is seeking public input on possible amendments the agency might consider proposing to Rule 3a-7, which excludes certain issuers of asset-backed securities from having to comply with the requirements of the Investment Company Act," said the SEC statement.

     Annaly makes money like a bank by borrowing money at a low rate and investing in securities with a higher rate.  They only invest in mortgage securities with an implicit guarantee of the US Government. 

     Edit:  11:28 PST  The market has sold off this afternoon with the SPY down almost 1% and small cap stocks are underperforming again today down almost 2.5%.  It might be too early to call the end of the rally but this action is concerning.  I am might add some RWM which is a bet small caps will go down and maybe some EFZ which is a bet that European stocks will go down.  Won't do it until I see how we close today.

     Market action today was very bearish.  We had a strong reversal and finished on the lows of the day.  I would say that is bearish for tomorrow but we have a wild card tomorrow and that is the all important government August non farm payrolls jobs report.  A good jobs report will send the markets soaring and a bad one will tank the markets.  I suspect that is why we sold off today.  Traders were preparing for the possibility of a bad jobs report tomorrow.  I did not make any moves today and will wait to see the report says.  I am hoping for an upside surprise but don't think that is very likely.  Economists expect a gain of 60,000 jobs for the month of August.

     I have a question  for my blog followers.  How do you get it so your blog posts show only a preview on the front page?  Right now my home page has the whole blog on it but I want to show just a preview.  How do I do this?  I looked through all the settings and cannot figure out how to do this.

Market rally continues into the new week

Local weather forecaster Kaj Goldberg is a little excited about Hurricane Irene...   

     The major indexes continued their recent rally into the new week as two major Greek banks merged and consumer spending reached its highest level in 5 months.  At 1:00 pm Pacific Time, the DJIA was up over 250, the S&P 500 was up 33 to 1210 and the technology heavy NASDAQ was up 82 points!

     Small caps stocks were outperforming with the Russell 2000 up over 4.5% to 724.  Gold prices were lower by $30 and the 10 year bond yield rose to 2.27% as people sold gold and bonds and put money to work in stocks.  Oil was up 2% to 87.50.

     Financial stocks rallied as Greece's EFG Eurobank and Alpha bank merged to shore up their finances.  This alleviated fears of a complete meltdown of the Greek banking system.  Banks and insurance companies were the top performing sectors in today's trading.  Insurance companies rose after damage from Hurricane Irene was less than expected. 

     Stocks were also supported by word out of Europe of a radical new plan to recapitalize banks.  The program would be similar to the TARP program implemented in the US during the 2008 credit crunch.

     "The government's of the healthier European banks could inject new capital into the banks, while the most extremely pressured banks could also receive backstops for their debt, (just as happened in the U.S.)," according to John Carney of NetNet blog.

       If true, this could be a game changer in the European debt crisis.

      European shares rallied smartly on the news with the German DAX up 2.5%, the French CAC up 2.4% and the Spanish IBEX up 2.6%.  The British FTSE was closed today for summer bank holiday. 


     Market action today was very positive.  Stocks steadily rose throughout the day and finished on their highs.  This type of action usually bodes well for tomorrow.  Interestingly, small caps are outperforming once again and over the past few days the small cap index has risen over 10%!  I was looking at small caps to lead a sustained rally higher and it looks like we are getting it.  We could rally for the rest of the week until we get unemployment data for August on Friday.  This data will confirm or deny the rally.

     Technicians I follow say that this 1210 level is important because it is where the rally failed a couple weeks back.  We are sitting on that level right now on the S&P.  If we can break through this level convincingly on good volume, the rally should continue.  I'm of the opinion that it will so I'm looking for the SNP to trade up to 1240-1250 in the next week or so.  If the double bottom pattern I outlined last week is confirmed we could even rally up to 1300, but I consider that unlikely in this environment.  Let's see what happens....